Income Investing Stocks That Defy A Down Market

Income investing with stocks is appealing amid a crummy market. After all, why not pocket income from stocks and funds when share-price gains are rare? Small wonder such stocks tend to outperform. Only stocks strong enough to keep cranking out dividends tend to slide less amid market carnage.

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The tough part is finding such stocks. Still, they do exist. We found plenty with yields up to nearly 10%, whose share prices have not fallen off a cliff this year.

And they are not distressed high-yield stocks. None is a company in dire straits. Their yields have not been dangerously pumped up by plunging share prices.

In fact, these are stocks whose share prices have not only outperformed the market this year. Their share prices have sculpted gains — in some case, dramatic gains — in crisp contrast to the broad market’s dismal decline. Those solid returns look like reflections of solid financial fundamentals.

Income Investing With Stocks

Such stocks make relatively safe income investing possible. It’s up to you to decide if they suit your overall needs.

Where can you find such stocks? One place to find them is in portfolios of the relatively few mutual funds that are outperforming the market. You can make your search easier by limiting your hunt to funds whose trailing 12-month yields also top the market average.

Outperforming the market requires a total return better than the S&P 500’s 22.68% setback this year, going into Monday, according to Morningstar Direct.

And let’s define average market yield as the trailing 12-month yield for a popular S&P 500 index fund like $246.6 billion Vanguard 500 Index Investor (VFINX): 1.63%.

Further, to make income investing with stocks more rewarding, let’s say that your hunt is for stocks with trailing 12-month yield at least double the market average. So the target is a yield of, rounded up, 3.3%.

Funds Owning The Right Stocks

Those requirements lead you to funds like $832.2 million SEI Multi-Asset Inflation Managed F Fund (SIFAX) and $124.2 million Madison Covered Call & Equity Income Y Fund (MENYX).

The $3.4 billion Invesco Dividend Income Investor FundF (STUX) also makes the cut. So does $100.4 million EuroPac International Dividend Income I Fund (EPDIX).

Those funds have posted returns of 6.63%, -2.48%, -9.3% and -9.34% respectively so far this year, after Friday’s latest mauling of the broad market. All are faring far better than the S&P 500.

And their trailing 12-month yields are 7.55%, 4.82%, 1.87% and 3.05%. Again, each is better than the S&P 500. Three are way higher than the big-cap bogey’s yield.

Stocks For Income Investing

What are some of the stocks enabling those funds to outperform and offer market-mauling trailing 12-month yields?

Pioneer Natural Resources (PXD) is held by SEI Multi-Asset Inflation Managed Fund. The oil and gas exploration and production company works the Midland Basin in West Texas.

Pioneer is the poster boy of income investing. The stock’s trailing 12-month yield is 7.92%. Pioneer’s total return is 52% this year.

It has posted triple-digit year-over-year EPS gains five quarters running. The company is due to report earnings on Nov. 3. It’s expected to post an 89% EPS gain for the quarter.

EPS is seen growing 147% this year. The stock rocks a solid IBD SMR Rating of A.

IBD SMR Ratings measure Sales, profit Margins and Return on equity. IBD’s SMR Rating scale runs A through E. An A score ranks in the top 20% of all stocks based on those gauges.

It has an IBD Composite Rating of 99.

A Composite Rating of 90 means that a stock is in the top 10% of all stocks on a number of technical and fundamental factors, including both price performance and earnings. Especially in a volatile market, watch for stocks that have 90-plus Composite Ratings and are forming bases or are in follow-on buy areas. That way, you spot the best-positioned stocks before they start big price runs. Look up a stock’s Composite Rating at IBD Stock Checkup.

Energy Stocks

Numerous additional energy stocks are among the equities that lend themselves to your search for stocks suitable for income investing. Many have posted outsize returns this year while boasting high-octane yields.

Take Devon Energy (DVN). It is another oil and gas E&P firm held by SEI Multi-Asset. It has returned 72% this year. Its trailing 12-month yield is 6.47%.

But if you don’t want overexposure to any single sector, there are other high-yield outperforming stocks to consider.

Metals Miner

Brazil-based metals mining company Vale (VALE) appears to be an inflation bet as well as an income investing play. Rising prices of commodities fuel inflation.

Vale sports a 12-month yield of 9.79%. For the year, Vale’s total return is 12.6%.

Still, Vale has its concerns. Earnings per share fell 17% and 11% the past two quarters after posting triple-digit gains for at least five quarters in a row. Yet earnings per share are nonetheless growing at a 274% three-year growth rate, according to IBD Stock Checkup.

EPS is expected to fall 35% this year. Vale is held by EuroPac International Dividend Income I Fund. Vale is due to report financial results on Oct. 27.

Focus On Income Investing

Ambev (ABEV) is another holding of EuroPac International Dividend Income Fund, which is focused on income investing. The beverage producer is based in Brazil. Its beer labels include Skol, Pilsen and Labatt Blue.

Ambev’s trailing 12-month yield is 3.73%. Its year-to-date return is 3.21%.

And then there is the ADR stock of British American Tobacco (BTI). The tobacco products maker is 22% off its 52-week high, according to analysis by MarketSmith. But it is still up 3.91% this year.

A trailing 12-month yield of 7.62% shows that the stock aims to appeal to shareholders interested in income investing.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and strategies of the best mutual funds.